The ratings of Premium Nutrients Berhad’s (Premium Nutrients) RM85 million Murabahah Underwritten Notes Issuance Facility / Islamic Medium Term Notes (MUNIF/IMTN) have been affirmed at MARC-2ID/AID reflecting its competitive position as an integrated producer of specialty fats; and the structural features in the issue structure. Nonetheless, a moderating factor to the ratings is the Group’s thin operating profit margin limiting its ability to further leverage its balance sheet.

Listed on the Second Board of Bursa Malaysia, Premium Nutrients is principally involved in the processing of palm oil’s fresh fruit bunches into crude palm oil and palm kernel into commodity products (non-specialty fats) and converting the processed commodity products into specialty fats. In FY2003, sales contribution from specialty fats and non-specialty fats stood at 60:40 (FY2002: 45:55). Due to better margins fetched from specialty fats products, the Group expects the sales contribution from its specialty fats division to increase further in the future.

The Group’s products are mainly targeted at the recession resilient food industry; with the principal users being confectionary manufacturers, chocolate manufacturers, animal feed formulators, ice cream producers and snack food makers. Demand for specialty fats are expected to be sustainable; bearing a close correlation to population growth and affluence.

In FY2003, the Group’s revenue rose marginally by 2.4% to RM363.87 million, mainly driven by sales from the Malaysian operations which accounted for 71% of the Group’s total revenue. The revenue contribution from the Indian operations is expected to gradually increase to reach 45% by 2010 following progressive capacity expansion. Its operating profit margin, albeit thin, increased to 5.97% (FY2002 : 3.51%). Exports
accounted for approximately 66% of the Group’s revenue in 2003 with 90% of specialty fats produced sold to foreign buyers. Meanwhile, non-specialty fats were mainly sold to the local market, accounting for 80% of the non-specialty fats sales.

Premium Nutrient’s operations registered an operating profit of RM11.05 million in year 2003. But due to a one-off restructuring expense of RM32 million, the company suffered a pre-tax loss of RM20.95 million during the year. The restructuring expense which involves a back-door listing exercise on Bursa Malaysia was financed through the issuance of an additional 64 million shares at RM0.50 each to shareholders and creditors of Bridgecon Holdings Berhad. The losses were also aggravated by high interest expense totalling RM7.9 million in 2003 (2002: RM4.8 million).

Besides its ability to cater to the specific needs of its customers, the Group has established a reputation for reliability in producing quality products; facilitated by the integrated nature of its operations and strong R & D capability. Currently, the Group’s plants are located in Pasir Gudang (Johor), Kulai (Johor) and Kakinada (India). The Group’s overseas markets are serviced by its established network of agents.

The Group’s debt leverage improved to 0.53 times(x) in FY2003 (FY2002: 0.85x) aided by the enlarged share capital. Based on the Group’s 2Q 2004 interim results, however, its debt leverage increased to 1.09x following the drawdown of the RM85 million MUNIF/IMTN facility. A maximum debt leverage of 1.25 times has been imposed under the issue structure. Liquidity risk is mitigated through the priority ranking accorded to payment obligations under the MUNIF/IMTN facility in the payment waterfall and maintenance of a liquidity buffer equivalent to one six-month profit payment of outstanding primary IMTNs